6 Great Dividend Growth Plays In Financials

by: Dave Dierking

Whether you're looking to enhance the total return of the equity portion of your portfolio or you're looking for relief from the historically low rates currently being paid in the fixed income market, dividend paying stocks belong in your portfolio. In uncertain market environments, dividends can provide a perpetual and predictable source of return on your investments and, in many cases, they can deliver the majority of the return on an investment.

Finding companies with a solid dividend yield is just a start. Find the companies that pay a steady consistent dividend and raise their dividend payout on a regular basis and you've got a recipe for investing success.

Financials have been under Wall Street's microscope for some time thanks to the mortgage credit crisis and government bailouts. Now that much of the fallout has been priced into those stocks and balance sheets have begun improving again, investors are tip-toeing back in. Financials have been a good source of dividend income in the past and today there are some particularly compelling values in the sector.

TICC Capital (TICC)

TICC is a business development corporation that's in the business of providing capital to both publicly and privately held companies.

From a valuation standpoint, TICC looks solid. It's currently trading just below its book value and carries a current yield of 11.7%. Better yet, it's been raising its dividend consistently for the last several years from $0.15 per share in the beginning of 2010 to its current payout of $0.29 per share. The company should also stand to benefit from the ongoing recovery in the tech sector in which TICC specializes.

The short-term risk is that the dividend payout rate is unsustainable. For the past two quarters, TICC's net investment income hasn't been enough to cover the dividend distribution. Any further weakness in NII could cause the company to reassess its dividend going forward.

However, I believe in TICC's ability to deliver on future NII forecasts. Net investment income grew 24% year over year in 2012 and analysts are forecasting revenue growth of 37% in 2013 and 21% in 2014. If the company delivers as projected, this remains one of the better high yield value plays.

Banco Santander (SAN)

Banco Santander is a European and Latin American bank holding company.

The stock price has been knocked all the way down to the single digits as investors and analysts try to assess how fully it will be affected by the Eurozone crisis. In truth, it's a fairly well diversified financial company that is deriving much of its growth and earnings from Brazil and the rest of South America as it's been reducing its exposure to some of the more troubled European real estate markets.

As a result, the stock looks to be significantly undervalued. The company has a book value of almost $10 per share implying that it has some upside potential. The stock has a dividend yield of 9.4% and has been a steady dividend payer for the last 15 years - even through the recent financial crisis as many banks were slashing their dividends.

This is a stock that can reward patient investors willing to ride out the instability in the Eurozone but also reward investors with a fat dividend while they wait.

United Bankshares (UBSI)

United Bankshares is also a bank holding company located primarily on the East Coast.

UBSI may not have the lofty yield of the other choices on the list - its current yield is "only" 4.7% - but if you're looking for a steady dividend payer you might not find a better choice than this one. They've been steadily growing their dividend for over 20 years and, just like Banco Santander, it maintained and even raised its dividend amidst the mortgage credit crisis.

UBSI is also in the midst of acquiring Virginia Commerce Bancorp (VBSI). That transaction is scheduled to complete in the third quarter and could put potentially put some downward pressure on earnings and income as they work through the logistics of combining the two entities.

The stock is not really cheap on a price/earnings or price/book basis but the potential for added growth with the VBSI acquisition along with the steady dividend means that this company is worth a look.

Glacier Bancorp (GBCI)

Glacier Bancorp is primarily a commercial bank headquartered in the north central United States.

Glacier is located well off the traditional Wall Street landscape but its footprint may actually play to its advantage. The bank is well positioned to take advantage of the region's natural gas economy and the Rocky Mountain region has been generally less affected by the housing market which means a more stable balance sheet overall. Like UBSI, the 3% dividend doesn't necessarily jump out at you but it's starting to grow again after a few years of flat lining.

Glacier is also getting into the merger and acquisition game as just last week they announced their agreement to acquire North Cascades National Bank. This follows the announcement about a month ago of the acquisition of Wyoming's First State Bank.

JPMorgan Chase (JPM)

JPMorgan Chase may be one of the biggest financials around but there's a lot to like about this bank as it continues emerging from the black cloud of the housing bubble. Its P/E ratio of 9 is below the industry average of 13 while revenue growth and operating margin figures are both above the industry average.

JPMorgan's challenges have been well documented recently. They were one of four banks that did not receive an unconditional approval on their CCAR stress testing exercise and the ongoing fallout from the London Whale fiasco raises some questions about management's ability to exercise proper regulatory oversight.

Still, the fundamentals remain compelling. JPMorgan is raising its dividend for the first time since the credit crisis began and is planning to buy back up the $6 billion of its own shares, the stock is currently priced below book value and the bank's ability to generate revenue remains strong.

BlackRock (BLK)

BlackRock is the institutional asset manager and marketer of the iShares family of ETFs.

For the past decade, BlackRock has been a remarkable growth story. After taking a hit during the financial crisis, the money manager looks to be back in high growth mode and it's now adding a growing dividend to its profile. BlackRock went from no dividend at all several years ago to a steadily growing dividend that is now approaching 3%.

The forward P/E of 14 might not seem like a bargain on the surface but this is a company that has seen earnings and cash flows grow at around 20% for the last several years and are forecasted to deliver 12% annual growth for the next several years. This is a company that should be able to continue the big growth as the general population ages.


Each of the six stocks presented offers a different profile in risk and return potential but the one constant among all of them is their ability to generate a growing dividend. For reliable dividend income with growth, each of these stocks is a solid choice to consider adding to your portfolio.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.